2017 (4) TMI 1486 - AT - Central Excise

Valuation - goods supplied to the sister concern as per Rule 8 of the Central Excise Rules 1944 - Department was of the view that the appellant who has not paid the excise duty in respect of the goods supplied to their sister concern M/s Nalwa Steel Power Limited in accordance with the rules of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 - HELD THAT - It appears that it is not in dispute that during the relevant period the appellant had supplied pig iron rails etc. to its sister concern M/s Nalwa Steel Pvt. Ltd. as well as to independent buyers but for consideration. It is also not in dispute that the appellant raised invoices for the supplies made to the sister concern and charged consideration amount and also paid the excise duty on cost basis in accordance with Section 4 of the Central Excise Act 1944 where the department plea is that since M/s Nalwa Steel Pvt. Ltd. falls within the definition of related party as defined under Section 4(3)(b)(i) the appellant ought to have assessed the excise duty payable as per Rule 8 of the Valuation Rules - Bare reading of rule 8 would show that rule 8 of Valuation Rules comes into play in cases of transfer of goods to a sister/ related concern without consideration. Admittedly this is not a case of no sale and it is also not the case of the Department that sale documents have been fabricated therefore prima-facie Rule 8 would not come into play. Thus the excise duty paid by the appellant in respect of goods sold to the sister concern on the basis of sale consideration as per Section 4(3)(b)(i) of the Central Excise Act cannot be faulted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Central Excise Valuation Rules regarding the assessment of excise duty on goods supplied to a sister concern.
2. Application of Rule 8 of the Valuation Rules in cases of transfer of goods to a related party.
3. Consideration of the Tribunal's precedent in Ispat Industries Ltd. vs. CCE regarding captive consumption for the applicability of Rule 8.

Issue 1: Interpretation of Central Excise Valuation Rules regarding the assessment of excise duty on goods supplied to a sister concern.
The appellant, engaged in manufacturing pig iron and steel products, sold goods to independent buyers and a sister concern during the relevant period. The department contended that the appellant did not pay excise duty correctly for the goods supplied to the sister concern as per the Central Excise Valuation Rules. The appellant raised invoices, charged consideration, and paid excise duty on a cost basis as per Section 4 of the Central Excise Act, 1944. The department argued that the appellant should have assessed the excise duty as per Rule 8 of the Valuation Rules for related parties. The Tribunal found that since the sale was not without consideration and there was no fabrication of sale documents, Rule 8 did not apply. Therefore, the excise duty paid by the appellant based on sale consideration was deemed appropriate.

Issue 2: Application of Rule 8 of the Valuation Rules in cases of transfer of goods to a related party.
Rule 8 of the Valuation Rules states that when goods are not sold but used for consumption in production for related parties, the value should be 110% of the cost of production. The Tribunal noted that Rule 8 applies to cases of transfer without consideration to related parties. Since the appellant had sold goods to the sister concern for consideration and there was no indication of captive consumption of the entire production, Rule 8 was not applicable in this scenario. The Tribunal emphasized that Rule 8 would only be relevant in cases of captive consumption of an entire production, as clarified by a precedent set by the Tribunal in Ispat Industries Ltd. vs. CCE.

Issue 3: Consideration of the Tribunal's precedent in Ispat Industries Ltd. vs. CCE regarding captive consumption for the applicability of Rule 8.
The Tribunal referred to the precedent set by a Larger Bench in Ispat Industries Ltd. vs. CCE, which stated that Rule 8 would apply when the entire production of a commodity is captively consumed. Based on this interpretation, the Tribunal concluded that Rule 8 did not apply to the appellant's situation where goods were sold to the sister concern for consideration and not entirely consumed internally. Considering the facts and circumstances of the case, the Tribunal set aside the impugned order and allowed the appeal filed by the appellant, disposing of the case accordingly.

This comprehensive analysis of the legal judgment highlights the interpretation of the Central Excise Valuation Rules, the application of Rule 8 in cases of related party transactions, and the relevance of precedents in determining the correct assessment of excise duty.